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Thursday, 8 December 2011

The financial cost of United's CL exit

So it’s London 2 – Manchester nil (enjoy it while you can
London, you aren’t going to win the thing).

The way modern football works, not only is being knocked out
of the Champions League miserable enough, but the financial consequences aren’t
great either, especially when you’re up to your eyes in debt.

Lots of people have asked me about the cost of United’s CL
exit, so here’s a quick run through of the figures. The bottom line is that due
to the way UEFA makes its payments, with a big element relating to the last
season’s domestic rankings, United will not lose a huge amount of cash compared
to last year.

What two wins, three draws and a defeat in one of the
easiest of groups says about the club is another matter.....

Last season

I’ll make financial comparisons with last season when of
course United were (well) beaten finalists. UEFA publish the TV cash
distribution and its shows MUFC received €53,197,000 (c. £46m) in Champions League income.

This season

There are several elements to the CL TV payments:

1. Participation and “match bonus”

All
clubs in the group stages receive a €3.9m “participation” payment and a €550,000
per game played “match bonus” (nonsensical since everyone is guaranteed six matches!).
So every club gets €3.9m + (6 x €0.55m)
= €7.2m.

Difference versus 2010/11: ZERO

2. Group performance bonus

For
every win in the group stages, a club gets €800,000 and for every draw €400,000.
The table below shows the number of each for the four English clubs this
season:

Difference versus 2010/11: DOWN €1.2m

Bringing
these elements together we can calculate how much the basic group stage
payments are:

3. Last season's knockout round payments

Participation in each round means another payment of the following amounts:

Last season United earned €16.1m as losing finalists.

Difference versus 2010/11: DOWN €16.1m

4. The “market pool”

The
market pool represents around 45% of the CL money UEFA distributes to clubs.
Each country has its own pool amount (reflecting the relative size of the
advertising markets). The English pool is c. €84m, around 25% of the total.

Each
market pool is distributed based on two formulae, 50% by the relative domestic
league position of the clubs from the relevant country and 50% by how far in the CL each club progress.

4a. Market Pool - PL finish element

As
Champions, United receive 40% of the Premier League finish element of the
English market pool, Chelsea (2nd in the league) receive 30%, City
(3rd) 20% and Arsenal (4th) 10%.

This
means that United receive c. €16.8m this season vs. the €12.5m they received
last season (when Chelsea were the reigning champions).

Difference versus 2010/11: UP €4.3m

4b. Market Pool - progress in the CL element

The 50% of the market pool determined by the relative
progress of the clubs cannot be calculated for certain until we know how far
through the competition Chelsea and Arsenal progress. The split is determined
on the number of games played (maximum of thirteen for finalists). The minimum
the London clubs could play is eight (if they go out in the next round).

The difference for United and City between the best and worse case is not huge (around €2m).

Difference versus 2010/11: DOWN €4.4-6.8m

5. Total UEFA CL payments

Adding up the group stage payments, and the market pool, the
most United can earn from the CL this year is around €36.5m, the least is €33.4m.

Total difference versus 2010/11: DOWN €17.4-19.8m (£15-17m)

Europa League cash

United and City will both get the dubious honour of being
parachuted into the Europa League in the new year.

The UEFA distribution for this beaten up tournament is less
than 20% of what is paid out for the Champions League. There is a market pool
and payments for progressing through each of the five(!) rounds up to and
including the final. Winning the competition could add around €10m (there is a
market pool here too).

Gate receipts

There are potentially four home games in the Europa league
vs. three in the Champions League, so the impact on gate receipts depends on a
few factors, primarily how far through the EL United progress. The club’s
website does not have ticket prices for the Europa League yet, and we do not
yet know whether the club will enforce the ludicrous “automatic cup scheme”
that compels Old Trafford season ticket holders to buy tickets for all cup games
(with an opt out only for the League Cup). If United enforce the ACS, if prices
are set close to those for the Champions League and if United get to the
quarter finals or beyond, there will be no impact on revenue.

A nice club would waive the ACS obligation to buy Europa Cup
tickets and would cut prices too (as Spurs have this season). Don’t hold your
breath.....

Conclusion

Because of the big market pool boost from being champions
last season, United will only lose a maximum of £17m in TV cash from the early exit.
Some of this can even be recovered from the Europa league. The club don’t
budget to progress beyond the last sixteen in any season, so recent success has
been a financial bonus. To put this loss into context, it represents a maximum of 15% of last year's EBITDA.

The fact that a club who have reached
three finals in four years can get eliminated from one of the easiest groups points to wider problems....

Okey, I was just thinking there might be some step by step program for player bonuses in CL. Because I remember I've this in the old JPM document: "Player contracts include a bonus related to qualification for Champions League, if it does not qualify the company will save ‘high single digit millions’ in player costs."

That bonus is related to qualification to the group stages, not the knock-out stages.

Anders, the only thing I'd add is that there was an unspecified amount received from Uefa for gate receipts from the final against Barca last season.

Anyway, isn't it lucky that the success of the Glazer inspired commercial division will protect the club financially against the poor performance on the pitch? Of course this comes after Fergie spent over £45m net in the Summer.

Anders, well done for being off the mark so quick against the leeches who own our club.As for GCHQ the commercial side is the massive success story and has comfortably taken over from the football team - how ironic. thats what we are getting from the Glazers, results from down in London courtesy of the new H.O. well they are making the money, crap from Old Trafford. Expect nothing from the F A Cup, nothing from the Premier league in terms of winning it. There is of course a small problem with the global economy on the edge and the Glazers still up to their eyeballs in debt. Sorry I forget they will be launching a successful IPO in Singapore

I must say that I agree with GCHQ as regards Utd's phenomenal success on the commercial side in recent years.

The extra revenue earned by this incredible commercial success, compared to what it had been pre-Glazers, is worth a hell of a lot of money.

I used to think that the Glazers were bad for Utd but, as things have panned out, I have changed my mind and,nowadays, I regard the Glazers as a benefit.

As SAF is reported to have said regarding the Glazers, "they're great owners - I don't bother them and they don't bother me"!

Their self-interest in Utd's continued success on the field is the best possible reason for them to allow SAF full rein.

Continued on-field success is of great commercial advantage to the Glazers. Therefore, the Glazers will sanction any spending which SAF feels is necessary - and all the time, staying totally within FFP rules.

As regards City and the so-called 'Group of Death', the actual reality is that both Napoli and City were CL virgins!

Even so, it was Napoli who rose to the occasion, so to speak, and it was City who recoiled!

I think it's being rather optimistic to couch this as a "loss" - whilst I'd love to think that we'd have made / won the final, getting there again would have been a fantastic achievement, even without out recent poor form / run of injuries.

If we'd gone out in the quarter finals would you have called it a "loss of £10m"?

I went to the bookies yesterday, lost £20. Well, I actually won £30, but the day before I won £50.... :-)

Fantastic analysis as ever, nice to see it being widely quoted / referred to.

Reminds me of my club Leeds United in 2002. Huge amounts of borrowed money could only be recouped by consistent qualification for the Champions League. They failed to qualify for the CL and down came the house of cards. Relishing this prospect at the Theatre of Prawns.

Who cares.On that note there are 15 other teams who lost 15-30m Euros.We don't see 'loss reports' or discussions of them do we.The entitlement attitude of teams like these and their followers is baffling.Hey ManU, you didn't lose anything seeing as it wasn't yours to begin with. Move on.

Will SAF have any money to spend on january? According to our recent accounts we have around £60m cash but we may need that money because usually have negative cash flow during q3 and our revenue will not be higher than last seasons but our costs have increased.As things stand I don't expect any £30m signing during january and we don't have any money to go on a spending spree during summer.On the bright side this may put pressure on Glazers to go through with the IPO because we are in serious decline and it wont be long before we finish outside the top 4.Is reselling the bonds already bought back an option for the club?

Thanks for the comments. I do appreciate that not getting to the final of the CL doesn't = "losing money" in the sense that it was never there to be lost.

I do think the comparison with previous years is important however. United got to the semis in 2007, won it in 2008, were runners up in 2009 and 2011. That's a lot of income the club became "used to" that won't be there this year.

Now they've done the decent thing on the ACS that will also have an impact. Football is about largely fixed costs (wages) and variable income (TV money). This year will see TV income decline and judging from Q1, wages rise again.

There's another factor that you haven't mentioned. Don't most shirt/kit/etc sponshorship deals now include performance clauses? Might be hard to get specifics on the contracts, and the club probably doesn't break them down separately when releasing their earnings reports. Not going to receive any of those bonuses this year.

Match day revenue is going to fall quite a bit now that United has declared that Europa matches are not mandatory for season-ticket holders. Manchester United averaged £3.7 million in revenue per match last season. I would expect most Europa games to be half-full unless United draws some of the better teams (Valencia, Atl. Madrid, etc), and that's even though they're almost certainly going to cut ticket prices substantially. Look at how empty the Crystal Palace Carling Cup match was.

Which brings up my last point. I doubt United will get far in the competition if SAF plays mostly youngsters. There are better teams than Crystal Palace in the Europa League.

Are you able to do a comparison of how the finances will compare based on how far we get in the EL vs the CL. So, for example, if we got to the final of the EL would that earn us more than if we'd stayed in the CL and gone out in the second round?

Obviously that will require some extrapolation for matchday revenue, but if we assume the club gets 2/3 of the revenue of a standard match in the EL I'd have thought a strong run in the EL would be more preferable financially than a quick exit in the CL knockout rounds. After all, the way we've played in Europe this season we'd probably have gone straight out in the second round if we were drawn against Barca, Real, Bayern or even Inter.